L.A. Firm to Bid for Global Crossing
A Los Angeles investment firm that specializes in buying distressed technology companies is making a bid to land the biggest bust of them all: Global Crossing Ltd.
The investment company, Gores Technology Group, will make a bid for Global Crossing in federal Bankruptcy Court in New York as early as this week, The Times learned Saturday.
The offer represents the third bid for Global Crossing, which lost more than $5 billion building an unrivaled fiber-optic network that covers much of the globe. Although its network was envied, the telecommunications company was ultimately brought down by its crushing debt and slowing demand for space on its network.
Unable to stave off anxious bankers, the Bermuda-based company, which has executive offices in Beverly Hills, filed for bankruptcy protection last month, listing $22.4 billion in assets and $12.3 billion in debt.
The action makes it the nation’s fourth-largest bankruptcy case, and the largest yet in the crumbling telecommunications industry.
Financial terms of the Gores Technology bid haven’t been disclosed, but the company will offer “substantially more value” for Global Crossing’s creditors than a much-criticized $750-million bid made by two Asian companies, a source familiar with the offer said Saturday.
A Gores Technology spokesman would neither confirm not deny the pending offer, saying the company does not comment on speculation.
Gores Technology is run by Israeli immigrant Alec Gores, who has gained a national reputation as a top-flight turnaround artist.
His firm has acquired more than 35 mostly small technology companies over the last 12 years, but its biggest catch came in October 2000 with the purchase of the deeply troubled Learning Co., the children’s software unit owned by toy giant Mattel Inc. of El Segundo.
If Gores’ past actions are a guide, his moves at Global Crossing could include bringing in a team of managers to rein in costs and losses, giving managers and employees a stake in the firm, then turning the operations back over to company executives. In most cases, Gores has not replaced existing managers.
Many believe that Global Crossing could survive, and perhaps thrive, once its debt was erased. But it won’t be easy.
The company’s core asset--its worldwide communications network--is of solid quality, but many of its routes are now crowded with competitors.
With too many players chasing too little data traffic, network prices have plummeted in some regions, exacerbating the financial woes at Global Crossing and many of its rivals.
Its most promising routes, the intra-Asian fiber-optic lines, are only partly owned by Global Crossing, through its 59% ownership stake in Asia Global Crossing. That company, which has not filed for bankruptcy, is now in grave need of more cash.
In the case of Global Crossing, Gores would be not only taking on a financially challenging project, but also walking into a company rife with employee resentment over executives’ high salaries and bonuses, which have been paid out even as thousands of employees lost their jobs, retirement investments and severance pay.
The company also faces investigations by the Securities and Exchange Commission and the FBI over accusations that Global Crossing used accounting tricks to mask its deteriorating financial health.
Global Crossing’s creditors are not happy, either. Under the only other reorganization plan under serious consideration, their cash allotment amounts to mere pennies for every dollar they are owed.
That offer was submitted by Hong Kong conglomerate Hutchison Whampoa Ltd. and Singapore Technologies Telemedia, two companies that already hold interests in a Global Crossing affiliate.
Their plan includes a $750-million cash investment in Global Crossing and gives them 79% ownership in the reorganized company. Existing shareholders would be wiped out, and creditors would get $300 million, plus $800 million in new debt and a 21% stake in the new company.
The Asian companies’ plan has been widely criticized.
Creditors believe that the $750-million investment is low--amounting to just $50 million more than the company’s current cash balance of $700 million.
Others believe that the bid raises national security concerns, because Hutchison Whampoa’s Li Ka-shing maintains close ties to Chinese leaders.
In addition, some worry that a recently discovered investment by Global Crossing Chairman Gary Winnick in a Singapore firm could be somehow linked to the Asian group’s offer.
To date, the only competing bid for Global Crossing has come from a shareholders group that said it would raise $5.5 billion over three years to repay creditors.
Once Gores’ offer is revealed, others also may surface. Analysts believe that many telecommunications firms are eyeing Global Crossing’s assets, but it’s unclear which firms will have the money and muscle to launch a credible bid.
Among those likely to be interested are overseas giants Deutsche Telekom, France Telecom and Japan’s NTT, as well as U.S. players ranging from SBC Communications to Verizon Communications and from AT&T; Corp. to Sprint Corp., or even cash-rich AOL Time Warner.
